‘Nobody ever has 40 extra grand’: Business owners feel ripple effects of CEBA repayments

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Amir Rahim says his team built Grounded Kitchen, Coffee & Bar “from the ground up on a shoestring budget” in 2010. But just as the business started to make a profit a decade later, COVID-19 hit.

His business survived. Rahim credits the support of the federal government’s Canada Emergency Business Account (CEBA) loans, a program geared toward getting small businesses through the pandemic.

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“I’m not a very political person, but in this particular scenario, I want to say for the record, that without (CEBA) I would have not been able to survive,” he says. “It would have been over in a heartbeat.”

Now that COVID-19 appears to be in the rear-view mirror, Rahim feels his entrepreneurship should finally be paying off.

And yet he’s still feeling the ripple effects of the pandemic despite Prime Minister Justin Trudeau announcing earlier this year that Canada should “wrap up” its pandemic programs.

For some small business owners, such as Rahim, that’s meant borrowing more money now in order to access the government’s forgivable portion of CEBA loans — and now that continued borrowing presents additional challenges for the foreseeable future.

“There’s no free lunches,” Rahim says. “Eventually I’d have to pay it back.”

The CEBA program offered interest-free loans of up to $60,000 to small businesses and not-for-profits during the pandemic.

If businesses repaid $40,000 by Jan. 18, 2024 — or applied for refinancing to pay the amount by March 28, 2024 — the government would forgive up to $20,000 of the initial $60,000.

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The window between January and March was an unofficial extension to qualify for government forgiveness. Beyond the grace period lies the ultimate deadline to repay the loans with five per cent interest rates per year on Dec. 31, 2026.

According to the CEBA loan statistics released following the end of the program, the federal government approved almost $50 billion in loans during COVID-19.

Advocacy groups expressed dismay after Trudeau announced that CEBA loan deadlines would not extend beyond the Jan. 18, 2024, deadline. They emphasized the importance of the forgivable portion for small businesses.

In December 2023, the Canadian Federation of Independent Businesses (CFIB) surveyed 3,148 of its members across Canada to assess their perspectives on the upcoming year, notably the Jan. 18 deadline.

The survey found that among the top issues business owners want the government to address in the new year are rising prices of doing business (77 per cent) and reducing overall taxes (74 per cent).

Alchad Alegbeh, a research analyst at CFIB, is now working on the results of new surveys about the CEBA loans.

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In an interview, Alegbeh says CFIB’s unreleased data from February 2024 show that from the rough estimate of 378 businesses who missed the Jan. 18 repayment deadline, six per cent would have been eligible for the forgivable portion if they made the March 28 deadline.

“The March 28 deadline is for those who are unable to pay [CEBA] back but have proof that they were looking for loans,” Alegbeh says.

“Six per cent is a very big number when we think about it nationally,” Alegbeh says. “It means that a lot of businesses might close their shops.”

In fact, 74 per cent of 3,148 respondents said they are strongly considering filing for bankruptcy.

Alegbeh says that, of the businesses who were able to repay their loans in time to take advantage of the forgivable portion valued up to $20,000, 61 per cent took personal deposits, while 22 per cent had to borrow from another lender.

“Even if you repaid the (CEBA) loans with your existing deposit or borrowed money, it’s still putting you in a difficult situation because you are not able to invest anymore,” Alegbeh added.

Michael Wood, an Ottawa-based advocate and consultant for small businesses, once owned an event rental company in the city with 23 full-time employees.

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He says in the first year of the pandemic he lost 97 per cent in gross income.

“In April 2019, our revenue was about $400,000,” he says. “Our revenue in April 2020 was $12,000.”

Wood did not take CEBA loans, as his losses were in the millions. He instead got into advocacy and consultancy work to help businesses who struggled to pay off debts.

Shortly after the Parliamentary Budget Officer (PBO), Yves Giroux, published his report on the cost of extending the CEBA forgiveness deadline in 2023 — the second extension for CEBA loans — Wood says he met with him to discuss the results.

The PBO report estimated that pushing back the deadline for businesses to repay their government-backed pandemic loans to access the forgivable portion would cost Ottawa an estimated $907 million.

During Wood’s meeting, he says he reiterated that the cost of the mental health and unemployment rate on the system would exceed far more than the potential $907 million figure from the PBO’s report.

“(CEBA) wasn’t (meant) to make up for massive losses … it was meant to pay it back,” Wood says. “The problem is (the) increase in revenue for small businesses does not cover it.”

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Wood says even if a business makes $100,000, it would have to make an additional 40 per cent more revenue to cover the loans without additional debt.

“People are taking out loans from third-party vendors,” he says. “The problem with that is it really boils down to more debt.”

Ruth Smiley-Hahn is a fifth-generation resident of Shawville, Que., a rural town 75 kilometres northwest of Ottawa, where she runs Café 349.

She recalls the six weeks mid-pandemic when she ran the restaurant without any other staff. During that time, Smiley-Hahn says the government’s CEBA loans helped her cover accumulated debts, which was “a huge weight off my shoulders.”

Although getting the loans was fairly easy, repaying it was a struggle. She had to visit three different banks to request partial refinancing before she could pay it back.

“It was frustrating to try to pay (the loans) because the banks did not seem to know what to do,” she says.

John Borsten, owner of the five Zak’s Diner locations across Ottawa and partner in The Grand Pizzeria and Bar, Metropolitan Brasserie and Starling Restaurant and Bar, says his main concern now is inflation.

Borsten says two of his five Zak’s Diner locations (Elgin and Kanata) took out CEBA loans during the pandemic. For him, the push for another extension was not necessary.

“At some point you gotta pay the thing back,” Borsten says. “Nobody ever has 40 extra grand that just happened to be lying around.

“You have good years, better years, and you have worse years. The trick is to hang in the game and adapt the best you can.”

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